House Market Economic Indicators Are Mixed; Passenger Complaints About Airlines Are Up; Gold Hovers At Highest Levels In More Than Two Decades; 2006 Predictions from; Americans Buy What They Don't Need; One Retired Man Working Hard

Aired December 10, 2005 - 13:00 ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FREDRICKA WHITFIELD, CNN ANCHOR: Welcome back, I'm Fredricka Whitfield at the CNN Center in Atlanta. CNN IN THE MONEY is straight ahead, but first a check on the headlines. This just into CNN, aviation officials in Nigeria say 103 people are dead in the crash of a domestic jetliner. They say there were 110 people on board when the plane crash-landed at an airport in the southern city Port Harcourt. The Red Cross says the other seven people aboard survived. A search and rescue operation is under way at the airport.

The investigation into the deadly accident at Chicago's Midway Airport begins in earnest today. The investigators will haul the Southwest airliner from the crash site to a hanger at the airport and they will start interviewing the crew and witnesses today. The plane slid into an intersection on Thursday, killing a boy and injuring 13 other people.

Israeli police forces say they found a terror tunnel in Gaza. They say militants planned to use the tunnel to infiltrate Israel and carry out terrorist attacks. It's the first time since the Israeli military withdrew from Gaza last summer that such a tunnel has been found.

Accepting the Nobel Peace Prize, Mohamed ElBaradei. He is sharing the award with his internal atomic energy agency. ElBaradei suggested today that the human race cannot survive with nuclear weapons adding they are just as much as taboo as slavery and genocide.

Those are the headlines. More news as it happens. IN THE MONEY is up next.

SUSAN LISOVICZ, CNN ANCHOR: Welcome to IN THE MONEY, I'm Susan Lisovicz sitting in for Jack Cafferty. Coming up on today's program, the real estate rollercoaster. If the housing market really is heading south, somebody's going to feel the pain. Find out who might be in for the worst of it.

Plus, fasten your seat belts. Passenger complaints about the airlines are on the rise. We'll look at what you are in for if you fly this holiday season.

And forget the crystal ball. Former GE boss Jack Walsh redefines what it means to be a CEO. Get his take on what's ahead for the economy in 2006.

You know, guys, everybody is talking about gold being a hot commodity. In my household, it's flannel sheets, fleece, everything. We're getting a cold snap, and the heating bills are going to be through the roof.

ANDY SERWER, EDITOR-AT-LARGE, "FORTUNE" MAGAZINE: Why is it such a surprise? This cold snap happens, it's winter. And then the price of oil goes up. The stock market goes down. It is like we've never been here before.

CHRISTINE ROMANS, CNN CORRESPONDENT: It's not a surprise. The seasons change four times a year. But this year is different because you are talking about last year; you had home heating prices up some 12 percent. This year it's up -- what? -- almost 30 percent, 40 percent in some parts of the country -- almost $1,000 for the average bill. That's a lot of money. And there are families being squeezed, middle-class families who are going to have trouble with those bills.

LISOVICZ: You talk about, for instance, gas; maybe I'm not going to the mall as often, maybe I'm not going to take these road trips on the weekend. This is a necessity. I mean this is life and death, quite literally.

SERWER: Hundreds of dollars, heating oil the most, natural gas expensive, too. Ironically, electric heat, we were brought up that electric heat, baseboard it's so expensive, right now it's the cheapest, because utilities haven't cranked up the prices yet. That is correct. Interesting stuff.

LISOVICZ: I mean we just started. In the Northeast, which is the biggest market; we actually got a blessing with a mild autumn.

ROMANS: Particularly -- for the elderly in particular, it's going to be heat or eat, or take your medicine in some cases. So you know, watch out for your neighbors.

SERWER: Call Venezuela.

LISOVICZ: More to come on that. If you're into gloom and doom predictions about the housing market, the news this week has plenty for to you chew on. For instance a survey from UCLA predicts a sustained drop in the market starting next year and lasting for several years to come.

The "Wall Street Journal" says investors are backing away from betting on homes and condos. At the same time, the housing market economic indicators are mixed.

To help us figure out who is in for the most pain, we're joined by Nicholas Retsinas. He's the director of the Joint Center for Housing Study at Harvard University. Welcome, Professor. Please set us straight. We have gotten mixed numbers recently. Existing home sales -- the largest part of the market -- declined recently. New home sales setting a record. What's up?

NICHOLAS RETSINAS, HARVARD UNIVERSITY: Well, talk about a housing bubble that's been around now for the last three or four years -- and reports of its demise may be a little exaggerated, but clearly, it's slowing. 2005 will go down as the best year in the housing market, in terms of sales and home improvements. But there are lots of indicators and lots of signals that we may have passed the peak and a slowing is ahead of us.

ROMANS: We should also remember that a housing market isn't really a national phenomenon. It's sort of a homogeneous thing in the country. You have investors who are starting to feel maybe a softening market in places like Phoenix or Las Vegas or some of the southern Florida for example. But when you look at the Northeast and we look at homes, for people living in them, some of those prices are still very firm. It is very local, this market, isn't it?

RETSINAS: Absolutely. You don't buy a house in the United States; you buy it in a particular metropolitan area, a particular community or a particular neighborhood. And those supply/demand relationships have to affect those particular areas. Overall it's been a pretty prosperous or pretty thriving sort of housing market. And again we are starting to see some signals of slowing in selective markets and selective jurisdictions.

SERWER: Nicholas, I like the fact that you're a little skeptical about -- I mean, this has been the most predicted bubble bursting in the history of Western civilization. I mean, come on here. A new study out by UCLA, though, predicts if this thing does burst it would have dire consequences on the job market. They're saying 800,000 jobs might be lost, 500,000 in construction, 300,000 in the related finance sector. Do you really see a ripple effect like that?

RETSINAS: Well, it is an important part of the economy, but historical perspective is important. Naturally, home prices have not declined as much as we can tell, since the Great Depression. And if the Great Depression comes again, home prices will just be a small part of our problem. But no question, it has provided construction jobs. It has provided jobs in the financial services area. And that will slow as the housing market slows. But slowing is a long way away from bubbles bursting.

LISOVICZ: Right. And actually, with the terrible hurricanes in the Gulf Coast, there are certainly signs of strength for the housing industries in those affected areas. Having said that, Professor, let's talk about those really hot areas like say, San Diego, South Florida. These are areas where, if you were looking to buy something, strictly as an investment, you might think twice?

RETSINAS: Oh, I think we've reached a point in the cycle where if you're buying a home primarily for investment purposes, you're going to be disappointed. Many people suffer from what we call extreme extrapolation comfort, which means if it's been that way for the last couple years, it will be that way forever. That's not the way the world works.

At the same time, given the growth in household information, given integration, it's unlikely that the core for the housing market will evaporate or dissipate. So the fundamentals work. But the investment -- this may be the wrong time for investment.

ROMANS: What about the right or wrong time to upgrade into a bigger home? Is this the time to do that if you're going to, say, stay it in it for five or 10 years?

RETSINAS: Well that's the key. Our research indicates that if you're sure that you will not have to sell your home in five to seven years, probably if you buy, you're not going to lose money. It doesn't mean you would have made more money if you put your money some place else. If you can ride through a cycle, you're probably going to be OK. At least that's what history tells us.

LISOVICZ: Just to sum it up, Nicholas, things are softening overall. But that is not a bad thing.

RETSINAS: Softening is a good thing; at some point income and prices have to become more in line. They are out of line, particularly on the two coasts. With a softening, it will give income a chance to catch up to home prices.

LISOVICZ: Nicholas P. Retsinas, who is in fact, you are in the National Housing Hall of Fame. He knows of which he speaks. He's also at Harvard University. Thanks for joining us.

RETSINAS: My pleasure.

LISOVICZ: When we come back, first you check you in, and then they check you out. Flying can be tough these days. Even before you get on the plane. We will see how air travel is looking for the holidays.

Plus, heavy metal. Gold is big with investors again. We'll tell you what that means for shares in mining.

And the star CEO on where America's money is headed. We'll hear from former GE boss Jack Welch about the economy and more.

(COMMERCIAL BREAK)

ROMANS: Washington says passenger complaints about the airlines are up more than 29 percent this year. According to the Department of Transportation, the hottest topics were cancelled flights, baggage headaches. What's more, "USA Today" reports that American carriers are putting fewer seats in the air this year, about 126,000 fewer per day than last December -- translation, more crowding and less service.

For a look what this all means for the busy holiday travel season, we're joined by Jim Ellis. He is chief correspondent at "BusinessWeek." Welcome back to the program, Jim.

JIM ELLIS, CHIEF CORRESPONDENT, "BUSINESSWEEK": Thanks, Christine.

ROMANS: Let's talk a little bit about the fewer seats and the same number -- if not more -- people trying to fly. That is going to make for a lot of headaches, isn't it?

ELLIS: Right. And basically, the airlines have found themselves in a very difficult position financially. The airline business historically, I think it is over the entire life of commercial flying, has really never made a penny. It's an extremely psychical business with very large losses. We are seeing now with three major carriers in bankruptcy.

A lot of the creditors are forcing the airlines to take a look at how they make their money, how they charge. And one of things they're pushing them to do is reduce their capacity. By taking more seats out of the air, it means, you know, there's basically less inventory, and therefore you can get higher prices for the inventory that's there. That's what we are seeing right now in the holiday season. And that is one of the reasons a lot of deals that a lot of people typically look for this time of year are going to be a little more difficult to find this Christmas.

SERWER: Hey, Jim. Andy Serwer here. I have a question about the health of the entire industry. Is it inevitable that this business is so poorly run, or has there been gross mismanagement? I mean Herb Kelleher at Southwest showed it could be done. What's going on here in terms of the CEOs and the executives?

ELLIS: I mean, basically I think that a lot of people who grew up in this business grew up in a time during regulation. Let's remember that this business, until the 1970s, had been regulated, fares were regulated. It was basically very difficult for you to either not make money or to get yourself into so much trouble that you would actually go out of business. That all changed in the deregulated environment, and a lot of the managers weren't skilled at dealing with that.

I think a lot of people now who run airlines are more schooled in dealing with today's problems -- except a lot of things have come up that they hadn't been used to, particularly fuel prices. The same fuel prices that are affecting people in their home heating bills and their gasoline purchases right now are affecting the price of jet fuel. It's not only high, and it's also gyrating, which means that a lot of airlines are not able to forecast what fuel prices should be. And therefore, their models are outdated in just a few weeks.

Southwest has been extremely successful at that in being able to hedge or basically lock in prices of fuel months in advance. Basically, they've profited from that recently. However, that can only go on so far.

This is an industry where a lot of the economic model is bad. And a lot of the things that are good economically for an airline are bad for passengers. We all love low fares. We all love the idea that there are flights all day long. That's bad for the airline. The airline would like to have high fares and put as few seats in the air as possible, because they'd need less planes, less fuel, and fewer employees. And so there is always a push-pull between what is best for flyers and what is best for the guys who actually own the airline themselves.

ROMANS: Right, Jim. And of course the airlines have to take these steps. I mean you feel for them. On the other hand, it is a service industry. And frequent fliers, you try getting something six months ahead of time. You know, have you to fly in the middle of the night. You have to make two connections. It's really very lopsided. Just a few days ago, there was a report that came out that said passenger complaints this year up 29 percent. And that ironically, one of the areas that there are more complaints, about just how the complaints are being handled. So many people have been laid off, that basically they are -- the passengers are getting a deaf ear.

ELLIS: Right. I mean they're having a hard time getting in contact with the customer service people because there are fewer staffers. Also, I think that a lot of the employees at most of the airlines are somewhat demoralized. They've seen not only their employee ranks go down, but also there's a lot of pressure on airline salaries across the board. And that means you're not going to find that happy, chipper person you might have found in the '80s.

This is a less glamorous business than it used to be. And I think that passengers are seeing that as well, especially this time of year when there are some people fighting for a relatively static or declining share of seats. I mean it has become very difficult to find deals and a lot of people are surprised that, you know, the $99 trans- con deals of the past are not here this year.

ROMANS: I guess you can also argue that you get what you pay for. A generation ago when a business traveler would file the expense report, the plane ticket was always the most expensive thing on it. Now, when we file expense reports, traveling for business, it is always the cheapest thing on it. Maybe -- it might be painful for us -- that's what the industry's got to do. It has to raise fares and it has to get fewer seats out there and that is what it has to do.

ELLIS: You know, yes from an investors' standpoint. The investors in the airlines are an unlucky lot, but those who stuck it out really would like it to happen. Whether it happens with as much competition as we have and whether it happens fast is another issue. There's why flyers have to be so much smarter in how they shop for fares, particularly in a holiday season when there is high demand. I mean there are still lots of strategies out there that people can use to try to get deals, but it just takes a lot more work.

SERWER: All right. We're going to have to leave it at that. And best of luck to everyone out there who is going to be flying over the holidays. Jim Ellis, chief correspondent, at "BusinessWeek" Magazine. Thanks for coming on to the program.

ELLIS: Thank you.

SERWER: Coming up after the break, it beats stuffing money in your mattress. Gold is back as a slinky safe haven for spare cash. We'll look at whether shares at Newmont Mining are headed higher. Plus fatal attraction, some people will just die with out those $500 shoes. Find out why we buy stuff we really don't need.

And how to navigate life after retirement. See how a former banker did it on our "Life After Work" segment.

(COMMERCIAL BREAK)

LISOVICZ: Now, let's take a look at the week's top stories in our "Money Minute." Jobless claims climbed unexpectedly. The number of U.S. workers filing for first time unemployment benefits jumped by 6,000 last months, 327,000. Wall Street analyst has expected a slight drop. The total number of people receiving unemployment benefits did decline, however.

A new spin on an old institution. Members of the New York Stock Exchange voted and approved a deal to buy Archipelago Holdings a fully electronic exchange. The deal will allow the 213-year-old NYSE to keep up with electronic competitors. It will also turn it into a publicly traded for profit company, 95 percent of voting members approved the deal.

And Coke isn't going to be getting real for much longer. Coca- Cola announced it will debut a new tagline early next year. Welcome to the Coke side of life. Part of an aggressive marketing campaign to jumpstart North American sales, the new slogan replaces its current "real" campaign.

SERWER: Gold continues to hover at its highest levels in more than two decades. And shares of the companies that mine that precious metal are seeing a run-up as well. Take, for example, Newmont Mining, the world's top producer of gold. The stock slumped earlier in the year, but this week shares of the company hovered around nine-year highs. That makes Newmont Mining our "Stock of the Week".

And this is a very simple equation really. The stock of Newmont goes up when the price of gold goes up. Gold was $250 an ounce in 2001; it's now over $500. And you have to look at the environment. Inflation is up, interest rates are up. The dollar's been weak. There's high demand from Asia. There's fear in the world with terror and pandemics. It is a perfect environment.

LISOVICZ: And you forgot to say jewelry, gold is apparently back in vogue.

ROMANS: But a lot of people are saying that gold should be considered a currency and not a heavy metal anymore. It is something that is, you know, one of the four big currencies. And people are buying it as if it can be traded like that. I mean it always has been, but more so. And one thing about the gold stocks, the people who produce it, they're doing actually better than the underlying commodity, aren't they?

SERWER: They have. Part of that reason why is they've hedged somewhat previously. They're not hedged so much anymore. It's a complicated equation. But you can kind of more leverage by buying the stocks. You're right. You can also buy gold coins like American Eagles or Canadian Maple Leaf, or Australian Kangaroos. There are mutual funds you can buy. And there also exchange traded funds, ETC, so there is a lot of different ways to play gold.

Some people do turn their nose up at this as an investment. They think it's ...

ROMANS: Old fashioned?

SERWER: Yes, kind of like hiding the money in the mattress as we said earlier.

LISOVICZ: Do you want something that is hedged because eventually, don't you think that gold would come down to sort of protect yourself against the fall?

SERWER: Still I think it's a good idea to have a little bit here. People are going to shoot me for saying this, first of all, this commodity, this investment, if you will, has been in a bear market for 20 years from 1980 to 2000. We're only four years in the bull market.

Again I go back to those factors, the fear, and the inflation. Strong demand from Asian economies, like China and India where there are gold bugs (ph) galore. As these economies improve, more and more people there are buying gold. So I think if you think the environment is good, it will continue to rise.

ROMANS: Here is my question. The stock is up 20 percent -- Newmont Mining is up 20 percent just since July. Then I start to get nervous that I've already missed this move in the stock, you know.

SERWER: Well look at this. They mine 7 million ounces a year, right. At $500 an ounce, that is $3.5 billion in revenues. A couple years ago it was only 1.7 billion in revenues when gold was $250 an ounce.

LISOVICZ: They bought a lot of mines?

SERWER: Yes, I mean they're doing stuff -- I was actually out in Nevada a couple years ago at the Carlin Trend, which is where they do a lot of their mining. And at that point they were sort of shutting things down because this was pre-2000 when things were going bad. Now I hear they are expanding,. They're looking to buy other companies. You know I think it is an exciting time, but people have a bias against it because it's been down for so, so long.

LISOVICZ: We'll be following it.

SERWER: Yes, I think you have to follow.

ROMANS: Gold.

SERWER: There is gold in ...

All right. Coming up on IN THE MONEY, find out what's on Jack Welch's mind. I interviewed the business megastar and got his line on what is up with the economy. Stick around for the results.

Plus, a few serious words about frivolous shopping. We'll hear from an author who literally wrote the book on why people buy things they don't need.

And how many salesmen does it take to sell a product? See an ad in the (ph) to answer that question on our "Fun Site of Week."

(COMMERCIAL BREAK)

WHITFIELD: Hello I'm Fredricka Whitfield at the CNN Center in Atlanta. IN THE MONEY continues in a moment. But first here is what is happening now in the news.

The Southwest jet that slid off a runway at Chicago's Midway Airport is, as you can see right now being moved off that street to an airport hangar. The jet slid into the street during a snowstorm Thursday night, hitting two cars and killing a 6-year-old boy that was in one of those vehicles. The investigation into what caused the accident could take a year say officials.

Next this developing story out of Nigeria. Another plane crashed, this one taking place in Nigeria. The plane crash landed at an airport in the city of Port Harcourt. Officials say 103 passengers on board were killed. The Red Cross reports seven passengers survived. There was bad weather in the area at the time of the crash, but it's unclear if that played a part.

A short time ago, top government officials wrapped up planning exercises for a possible avian flu pandemic. The tests were conducted at the White House. Officials say you, the public, should also be prepared. A virus affecting millions of birds has spread through Asia and parts of Europe, raising concerns about a widespread outbreak here in the U.S.

It is slow going this Saturday in much of the Northeast. People are digging out from a major snowstorm that hit the area yesterday. New England got the worst of it. More than a foot of snow fell there. Residents are finally getting a break with a dry weather forecast for the region this weekend.

I will have all the days' news at the top of the hour. Now back to more of IN THE MONEY.

SERWER: With only a few weeks left in 2005, people have started wondering what the New Year will hold. Where will the opportunities be? What about potential pitfalls? And how will corporate America make out next year?

We thought we'd get some insight on these and other questions from one of the brightest minds in business, so I went up to Boston and sat down with Jack Welch, the former chairman and CEO of General Electric. I began by asking him how he thinks the economy will perform in '06.

(BEGIN VIDEOTAPE) JACK WELCH, FORMER CHAIRMAN AND CEO, GENERAL ELECTRIC: I think we're in reasonable shape, after a steady run here.

It is towards the end of the year. We're going to be seeing interest rates starting to pinch the consumers. Gas prices have pinched the consumer. So we might see some consumer slowdown in the U.S. But capital spending is going to push us along. I think overall, we'll have a slowing economy -- I'm not a perfect economist by any means -- but we'll have a slower GDP growth, but not anywhere near a recession.

SERWER: You have been a strong supporter of President Bush, questions now about his leadership, his poll ratings not so good. Are you concerned about that?

WELCH: I think he's had a tough year. Without question, he's had a tough year. But I think he has also not selling himself hard enough. (INAUDIBLE) but he is coming out strong on that. The economy, he should be taking credit for. This economy is very good. We've created two million jobs in the last 12 months. And we are growing. China's growing. China's growing off of us too, because we're growing. And he should be out -- if Ronald Reagan or Bill Clinton had his economic results after a massive attack on our country and a war, holy cow.

SERWER: You talked about China. I want to touch on that a little bit more. Obviously, this is a huge opportunity and a huge risk. Is this a situation where it will present America with a great market for the next two, three, four, five decades?

WELCH: It's going to be a huge opportunity, as you point out. And if you're in a commodity, with high labor content, you're a huge threat. So you got to move up the food chain. You got to find ways to compete.

On the other hand, you've got to find ways to partner and play in China. The market's too big to ignore, and the opportunities to manufacture or participate through them in global economies is too enormous. But I see China as a vital part of a growing new global economy.

SERWER: So what do you think about these people who knock young Americans today and say that they're not creative, they're not talented, they're getting beaten by foreigners? True?

WELCH: Absolutely not true. I don't know who they are -- if they were here, we'd have an argument -- because I've seen and smelled and touched them in the last six months, more so than I did when I was working. I've touched them a lot then. But I'll tell you, these kids are on fire. We have the best breed that I've seen in the last 25 years coming out of schools right now. On fire, with competitive juices flowing.

SERWER: What about some of these things hanging over the economy, though Jack, such as deficits and especially pension shortfalls?

WELCH: There's no question we have drug benefits. We have Social Security issues. We have pension issues from companies that aren't delivering. We have problems. But the nice -- we have a culture that knows how to deal with it. But sometimes, we have to get hit in the face with it.

You know, I remember in the '80s where I got my job, 1980, Japan. And Japan was going to take over the world. The prime rate was 21 percent. Unemployment was 13 percent. People forget that. People forget those times. And we fixed it. Now, we're dealing with the Chinese threat and opportunity. And we'll deal with the deficit.

Everyone said the dollar was going to weaken against the euro. How can the dollar weaken against the euro? When Europe doesn't grow. It has double-digit employment. It has inflexible work rules. Everything against its job. You know, in France, I just saw a poll, 76 percent of the young people, 76 percent of the young people in the economy would like to be in a civil servant job. Do you think four out of five kids in America want to work for the government? No way. We have something different.

SERWER: What concerns you the most, looking ahead into 2006?

WELCH: 2006, whether or not we make the right moves with interest rates. Whether we have a -- terrorism is always on my mind now and it never was before. Do we have a shock that changes the game? Do we have an oil disruption? That would send oil -- if you are talking about the economy, I think it's oil and interest rates and a shock. And I think we always have to be cognizant of those. But I do think we're poised. We've got better companies, with better CEOs, more competitive than we've ever been.

People get their hands in. Our balance sheets are in better shape than they have been in years. Balance sheets are flush right now. Venture capital is hot. Private M and A activities at a high level. So I think -- I happen to believe the glass is more than half full.

(END VIDEOTAPE)

SERWER: Former GE CEO Jack Welch -- a great business mind. Interesting to hear him faulting President Bush for not taking credit for the economy. Aubsequent to that interview the president started to try to do that and helped his poll numbers by talking up the economy a little bit.

ROMANS: Very fascinating. An interesting guy to sit down with for a few minutes and talk about what he thinks for 2006. He seems to really have his hand in it. Retired, but still has his hand in it.

SERWER: Well he is still ...

LISOVICZ: He is still writing books, and he's giving speeches and he is a very coveted speaker. But I have to tell you as someone who gets bombarded with somewhat depressing -- as we all are -- headlines, it is nice to hear someone with a sharp a mind as him saying that there is actually a lot of good things going on.

SERWER: Well it is smart because over time the U.S. economy grows. I mean it is -- you can't help but feel that way when you take a longer view.

ROMANS: All right. Andy Serwer thank you, Andy.

There is lots more to come here on IN THE MONEY. Up next, open wallet, engaged brain, we will look at what you're really getting when you spend on yourself or on someone else. The author of "Why People Buy Things They Don't Need" is just ahead.

And a store, in a sugar cone, Allen Wastler is going to connect the dots between your double scoop of rocky road and a water buffalo.

(COMMERCIAL BREAK)

ROMANS: Shop till you drop -- it's the mantra of many Americans this time of year. But do we really need all this stuff we're buying for others and for ourselves?

Let's find out from Pamela Danziger. She is the author of two recent books on why we buy. She's also the president of luxury research and consulting firm Unity Marketing. Welcome to the program.

PAMELA DANZIGER, UNITY MARKETING: Nice to be here.

ROMANS: Is it true these estimates that we spend up to a third of our disposable income on things we don't even need?

DANZIGER: Well, you know it's a variable question but clearly somewhere between 30 and 40 percent of total consumer spending would be in areas of consumer goods that we can say we don't need, like sporting equipment, DVDs, music, I mean even televisions and so on. So yes, it really is true.

LISOVICZ: Hey Pamela, you know I really didn't need another embroidered pillow for my bed. I didn't need another scented candle for my living room. I didn't need a garden gnome. But if it makes me feel good if I'm saving for retirement -- Andy is getting nauseated by these descriptions -- tacky it may be, but if it makes me feel good and I'm saving for retirement and I have very little debt, what's the problem with that?

DANZIGER: Well, there actually isn't any problem. I have discovered in my research with consumers what I call the quantum theory of shopping, which in one simple equation, that even the mathematically challenged can understand, explains all shopping behavior.

SERWER: What is it?

DANZIGER: Well, there are four factors here. First is some particular need. Now, some of us have, you know, hot button products that we really get turned on by. But we have some need. And then we also have some product features that turn us on and make us have a propensity to buy. Plus an affordability factor.

For example, you can go into a boutique and buy an $18,000 handbag. That's something that I clearly cannot afford and it's not possible for me to afford. But I can maybe afford an $1,800 Chanel bag if I really loved it. And that is the essential factor in the equation, which is what we call emotion squared. Because it's the emotion that works off and plays off each of these other factors that really drives you to buy.

ROMANS: And that's what Madison Avenue, that's what the stores are banking on when they do their advertising, when they try to market to you, they're trying to appeal to that emotion, right?

DANZIGER: Yes, exactly. They're trying to push those hot buttons. You know, it's really interesting because a consumer marketer cannot in any way, shape or form create need. Like I don't have a dog. I'm not a market; I'm not going to ever buy doggy stuff. But they can touch my hot button with area of products that I really love which is shoes. So you can play off those hot buttons. And everyone, even Andy has got a product category that turns him on.

SERWER: I've got a shoe fetish, Pamela, that I've got to tell you about maybe after the program.

LISOVICZ: We'll talk about that.

SERWER: I want to ask you, why don't people buy things that people really need, like savings bonds? I mean, I know it's not very romantic, but people don't do that. Or gold coins? Gold's on a big rally here. Why not financial instruments? People don't do that, do they?

DANZIGER: That's so practical. In research that we do with consumers about gifting, the best gifts are the ones that people are not likely to buy for themselves but will really enjoy. Let's face it, a savings bond is really a dull and boring gift. Gifting is all about the emotion, so you want to give something that really excites someone. So give your wife a diamond necklace, forget the savings bond.

LISOVICZ: I'm all for that, Pamela. By the way, I hated math, but I love your equation, probability to buy equals some need, plus product features, plus affordability, times emotion squared.

Can you tell us, Pamela, how the Internet, which is actually emotionless in many ways, taps into that emotion?

DANZIGER: Well, you know really lots of people think that there isn't any emotion on the Internet, but that's quite the contrary. Because you know I can sit at midnight in my jammies with a glass of wine and I can shop. So that is a very important ...

LISOVICZ: I thought I was the only one that did that, Pamela?

DANZIGER: We all do it, you know. And television shopping, too, is highly emotional. And it really involves people. And so I think that the idea that there aren't emotions involved with Internet shopping and some of these high tech areas is absolutely a lie, because it very definitely is an emotion and it's convenient. SERWER: Pamela, a quick last question here, Christmas shopping, how much of this -- I find myself doing this, buying stuff for myself. Am I weird or do other people do that?

DANZIGER: Oh, no, that's normal. The thing is, this is the time when everybody goes shopping. And it is often, many times, people stay out of the stores a lot. This is the one time of the year that everybody is guaranteed to be out there shopping and looking at things. More than half the shoppers, at least more than half, buys things for themselves, too while shopping for gifts.

ROMANS: And the goal here, Pamela, of course is if you're somebody with a lot of credit card debt, you're somebody who is not saving for retirement, you're going to have to try to get a hold of those emotions because it's not good for your financial future at all.

DANZIGER: Yes, it's better to pay cash if you have that credit card debt.

ROMANS: Pamela Danziger author of "Why People Buy Things They Don't Need," there are a lot of you out there. Thanks for joining us.

DANZIGER: Thank you.

ROMANS: There is more to come here on IN THE MONEY. Up next, a second career giving classic boats a second chance. We will show you the guy who it happens on our "Life After Work" segment. And if that floats your boat, or if you want to sound out about something, drop us a line. Our address is INTHEMONEY@CNN.com.

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LISOVICZ: The road to retirement can be long, winding, and sometimes bumpy. That's why many Americans kick back and relax once they finally get there. But one Annapolis, Maryland, man isn't exactly taking it easy. For him, life after work means long hours and hard labor.

(BEGIN VIDEOTAPE)

LISOVICZ (voice-over): Bill Donahue says he works harder now than ever before.

BILL DONAHUE, ANNAPOLIS CLASSIC WATERCRAFT: This is the hardest job I've ever had. If one thinks that you can make this kind of career transition at this point in your life and sort of kick back and cruise, it doesn't work this way. This is very, very hard.

LISOVICZ: Donahue doesn't mind the hard work. He left his career as a banker and sold his consulting business to take his hobby to the next level, his own boat shop, Annapolis Classic Watercraft.

DONAHUE: I was lucky in that when I sold my business, the company that bought me out paid me royalties for about three years on software I had developed, and that helped pay the bills. Now, that part has kind of ended and now the business is self-supporting. LISOVICZ: A self-taught boat restorer, Donahue doesn't own a boat. He prefers restoring them.

DONAHUE: I've always enjoyed working on boats, more than using them.

LISOVICZ: From his base on the Chesapeake Bay, retiring baby boomers are keeping Donahue's business afloat.

DONAHUE: We were in the '50s and '60s, and when we were kids we saw these great old boats, you know they were beautiful and gorgeous. Families who might not have been able to afford them might not have been able to. Now, we have some money and these boats are still around.

LISOVICZ: Now, Annapolis Classic Watercraft has more business than it can handle. But Donahue doesn't mind all the work.

DONAHUE: I never envisioned retirement as sitting around, playing golf, going on cruises and things like that. I'm having such a good time, I don't feel it's right to charge people money to do it.

(END VIDEOTAPE)

LISOVICZ: Bill Donahue says the toughest problem in his business is finding skilled workers. Most of his employees are people just like him, career changers with a passion for fixing boats.

Coming up next on IN THE MONEY, a sales pitch with something extra, make that lots of extras. Check it out on our "Fun Site of the Week."

And it is time to here from you as we read some of your emails from the past week. You can send us an e-mail right now, we are at INTHEMONEY@CNN.com.

(COMMERCIAL BREAK)

LISOVICZ: You know that old saying you are what you eat, and if you eat a lot of ice cream that makes you a cow, right?

ROMANS: I don't want to think about it.

LISOVICZ: Well maybe not for much longer. Money.com managing editor Allen Wastler explains in this week's "Inside Out," which would make us a water buffalo or a yak or a sheep or something like that.

ALLEN WASTLER, MANAGING EDITOR, MONEY.COM: Which is kind of amusing. Down at the FDA they've got a new set of regulations for ice cream, right?

SERWER: Yes.

WASTLER: Well, it's important what goes in ice cream. So I read these bad boys. They've got everything from pasteurization; to how much berry juice should go in the sherbet and everything. But one thing they have is how to label sourcing milk products from other animals.

I called up the Ice Cream Association that's pushing these rules. They say the way it is right now, you'd have to have a separate set of rules for goats, a separate of rules for sheep. And I said what about yaks and what about water buffalo? They want just one general way for, if you're getting your milk from somewhere else, how do you explain it. But dairy farmers, talked to a few of them and they say this opens the door for sourcing milk from abroad in the U.S.

Now get this. I checked the prices for water buffalo milk, because India is one place where they get it. It goes for about 45 cents a gallon. All right. Now if you powdered that and brought it over here and made your ice cream, compare it to the price you are getting for cows' milk there is an economic argument there.

But the Ice Cream Association said that's not what we want to do; no we're just trying to streamline all the regulations. But you sort of wonder, because when you look at the Ice Cream Association members, big honking companies, big honking companies. They do need the economics behind them to do the ice cream.

SERWER: And they are trying to get that yak milk out of America, which is a good thing I guess.

WASTLER: Yak milk and water buffalo milk and actually the dairy farmers saying what you have to worry about is the powdered milk regulations, it is the powdered milk regulations because you can mix that up and it gets all confusing where it's coming from.

SERWER: What does the goat milk ice cream taste like?

LISOVICZ: We're all screaming for ice cream. Let's go to the phones.

WASTLER: All right. What goes great with ice cream? Beer! We've got a great beer commercial for you. Check it out.

SERWER: "Lord of the Rings" there, now?

WASTLER: I just love that ad.

SERWER: And you know, they're all going to need some beer, too. It's like double the cost, not only do they pay them, but they have to give beer to.

WASTLER: You have to give them beer. Maybe they paid them in beer, you never know.

LISOVICZ: Allen, thanks. As always, very refreshing. Now, it's time to read your answers to last week's e-mail question. What was the craziest thing your boss has done at work? Remember yours Andy right.

Don writes, "There were five us in the office. My boss said one day, 'Let's all go to the horse races and come back this evening to work.' We did and had a ball."

SERWER: Good boss.

LISOVICZ: There you go. Another viewer, Steve said, "In an effort to stall anxious employees at a meeting where layoffs were being announced, my boss had the office do the Hokey Pokey."

SERWER: Bad boss.

ROMANS: Oh, no.

LISOVICZ: Not a good move. Turn yourself around. And Kelly writes, "My boss was so excited about his stocks going up, he ran out in the middle of the office and mooned us."

SERWER: Horrible boss.

WASTLER: Hey, I feel like doing that sometimes.

LISOVICZ: That is a demotion right there. Now for next week's email question of the week, what have you bought that you didn't need this holiday season?

I really did not buy a garden gnome, just for the record.

SERWER: Oh, yes, did you.

LISOVICZ: Send your answers to INTHEMONEY@CNN.com. You should also visit our show page at MONEY.com/inthemoney that's where you'll find the address for our "Fun Site of the Week."

Thanks for joining us for this edition of IN THE MONEY.

Thanks to "Fortune" magazine Editor-at-large Andy Serwer, LOU DOBBS TONIGHT correspondent Christine Romans and MONEY.com Managing Editor Allen Wastler. We will see you back here next week Saturday at 1:00, Sunday at 3:00. See you then, enjoy the rest of your weekend.

(COMMERCIAL BREAK)

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